Cisco Systems, Inc. (CSCO): This Tech Powerhouse Has 20% Upside Potential

Valuations

Cisco’s market performance has been nothing short of impressive. The company has given investors a +40% return in the last year along. If we take into account the weak global economy and an even weaker industry situation, this is a stellar performance by any measure. Cisco is currently trading at a forward P/E of 11.4x, compared to IBM at 11.1x and Juniper at a P/E of 13.8x.

The mean sell side target price for Cisco is $23.50, which is almost equal to current valuations. The resilience it has shown to an adverse global economy and continued performance in the enterprise segment calls for higher multiples. Using a P/E of 14x, we can establish a target price of $29 on 2014 consensus EPS estimates; a 20% return on current levels.

Bottom line

Despite a lousy economy and poor performance by the industry, Cisco has managed another stellar quarter. The company continues to astound the analysts, which is evident by yet another earnings beat. The stock is trading at a p/e of 11.4x which gives it a lot of room to expand. If we use the industry average P/E of 14x, it gives us a 20% upside on current levels. This upside combined with high earnings visibility makes Cisco a long-term buy.

Red Chip has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of International Business Machines.

The article This Tech Powerhouse Has 20% Upside Potential originally appeared on Fool.com and is written by Red Chip.

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